Get Ready For An Unusually Busy Week For The Economy

This week, we'll get the U.S. jobs report, July auto sales stats, and the first official estimate of Q2 U.S. GDP growth.

GDP reports are usually not too interesting as they are backward-looking stats, most of which are revealed through other monthly reports.

Nevertheless, everyone is interested to see what number the U.S. managed to crank out after an unexpected 2.9% rate of plunge in Q1.

Meanwhile, we'll also get a ton of manufacturing reports from around the world and from within the U.S.

Also, the Fed's Federal Open Market Committee (FOMC) meets on Tuesday and Wednesday to mull over monetary policy.

Also, Pfizer, American Express, Exxon Mobil, Colgate-Palmolive, Time Warner Cable, and Valeant Pharma are among the companies announcing Q2 financial results this week.

Here's your Monday Scouting Report:

Top Story

All Eyes On Q2 GDP: "Following the first quarter’s surprising 2.9% decline in GDP, we are looking for a nice rebound in Q2," Wells Fargo's John Silvia said. "Perhaps even more notably, personal consumption expenditures grew at an initially reported 3.0% pace, but the figure was revised down to only 1.0%. While the decline in Q1 GDP was rather discouraging, economic indicators thus far in Q2 have been much more upbeat. While we still see net exports putting a drag on economic growth, inventory-building should provide a boost in Q2."

The 66 estimates of economists surveyed by Bloomberg range from 2.3% to 5.2%.

Looking Beyond Q2: "Layoffs are falling and bank lending is accelerating — two powerful statistical indicators of the economy's building momentum heading into H2 14," said UBS's Maury Harris, who sees "3 handled" real GDP growth from now through 2015. "The major expected behavioral drivers continue to be pent-up demand and lagged positive credit impacts from earlier QE. From the Fed's perspective, housing is a downside risk, although we believe recently tepid mortgage applications and new home sales should pick up with better job creation and related household formation."

Economic Calendar

Markit Services PMI (Mon): Economists estimate this index of services activity slipped to 59.8 in July from 61.0 in June.

Pending Home Sales (Mon): Economists estimate sales climbed 0.5% month-over-month in June. "After a string of weak data starting last summer, pending home sales have improved over the past three months," said Bank of America Merrill Lynch economists. "This has also been reflected in the existing home sales data, which track closed contracts. Part of this gain is a payback from the extraordinary weakness during the winter. Smoothing through the year, it still seems that home sales will be down this year relative to last."

Dallas Fed Manufacturing Index (Mon): Economists estimate this regional activity index climbed to 12.0 in July from 11.4 in June. "The regional manufacturing surveys released so far in July have shown strengthening, with gains in the Philadelphia, New York, Richmond, and Kansas City Fed measures," noted UBS's Kevin Cummins. "In contrast, the Markit "Flash" PMI slipped a point but still signaled solid growth."

S&P/Case Shilling Home Price Index (Tues): Economists estimate home prices climbed by 0.3% month-over-month in May, or 10.0% year-over-year. "This is a marked slowdown from the 10.7% qoq saar increase in 1Q," said Bank of America Merrill Lynch economists. "While we had expected home price appreciation to slow, the sharp swing between 1Q and 2Q seems extreme and may reflect poor seasonal factors related to the share of distressed transactions. As such, we may see stronger monthly readings in the second half of the year even though the yoy rate should continue to slow."

Consumer Confidence Index (Tues): Economists estimate the Conference Board's index of sentiment climbed to 85.5 in July from 85.2 in June. "This would reflect the effect of improved housing and labor markets, and we expect confidence to continue to move broadly higher in the second half of the year," said Barclays economists.

ADP Employment Change (Wed): Economists estimated private payrolls climbed by 230,000 in July, down from 281,000 in June. "The early July employment data — claims, regional manufacturing surveys — suggest an improving trend in hiring. Relative to the BLS data, ADP growth has run at a slower pace four out of the last five months," said Bank of America Merrill Lynch economists.

FOMC (Wed): At 2:00 p.m. ET, the FOMC will publish its statement. There will be no update to the committee's economic forecasts, and there will be no press conference or Q&A to follow. Economists estimate the Fed will keep interest rates unchanged, and taper monthly Treasury purchases by $5 billion and monthly mortgage backed securities purchases by $5 billion.

Here's Goldman Sachs' David Mericle: "We expect that next week’s FOMC statement will show very little change. The FOMC might choose to upgrade the language on growth in economic activity somewhat, and it might also strengthen the language on labor market indicators a touch in recognition of the strong June employment report. For the most part, however, recent data have supported the characterization of current conditions in the June statement. In particular, the softer June CPI print likely reinforced the Committee’s decision to downplay the firmer inflation prints seen from March to May, and weak housing starts and new home sales reports have likely reinforced concern about the housing sector."

Initial Jobless Claims (Thurs): Economists estimate weekly initial claims ticked up to 302,000 from 284,000 a week ago. "Initial jobless claims probably remained near eight-year lows," Citi's Peter D'Antonio said. "We posit that seasonal factors and their inability to adequately account for the declining number of auto shutdown-related July claims, have exaggerated the improvement in this indicator that was already underway in May and June. This resulted in the recent downswing in weekly filings. Separately, beneficiaries and the insured rate likely also remained low due to factory retooling period seasonal factor idiosyncrasies."

Chicago PMI (Thurs): Economists estimate this index climbed to 63.0 in July from 62.6 in June. "This report on business activity in the Midwest region was broadly positive throughout Q2," said Nomura economists. "The new orders and order backlog sub-indexes within this survey exceeded 50 in June and suggest that activity should continue to expand, at least in the near term. Also, other regional manufacturing headline indexes remained elevated in July."

The Jobs Report (Fri): Economists estimate nonfarm payrolls increased by 231,000 in July, driven by a 228,000 jump in private payrolls. The unemployment rate is expected to be unchanged at 6.1%. Average hourly earnings is expected to have increased by 2.2% year-over-year. Here's Morgan Stanley's Ted Wieseman, who is estimating 230,000 payrolls: "Jobless claims fell to a seven-year low in the July survey week and then an eight-year low the next week, pointing to the pace of firings continuing to run at historically low levels, and business surveys have been pointing to some pickup in sluggish hiring rates. Consumer confidence surveys have shown rising confidence in job-finding prospects, also consistent with a pickup in hiring but likely to support a higher quit rate. Strength in motor vehicle production, with July assemblies scheduled to rise to an eleven-year high in seasonally adjusted terms, we expect will support an outsized gain in manufacturing payrolls. The rise in employment we’re forecasting would lower then unemployment rate another tenth to 6.0% with a stable labor force participation rate, which is our baseline at this point, assuming the demographic downtrend of 0.2 to 0.3pp per year from the aging of the population is being offset by returning discouraged workers."

Personal Income And Spending (Fri): Economists estimate personal income and spending both increased by 0.4% in June. Core PCE, the Fed's favorite measure of inflation, is estimated to have climbed by 1.4% year-over-year. "The jump in spending reflected a solid increase in core retail sales and a rise in unit auto sales," Citi's D'Antonio said. "In addition, the retail sales report implied substantial upward revisions to earlier months. These gains were partly offset by a dropoff in heating expenses as the weather normalized. The net effect was a rise in real consumer spending of about 21⁄4 percent at an annual rate. Meanwhile, the gain in payrolls signaled another healthy pickup in wage and salary income."

Markit US Manufacturing PMI (Fri): Economists estimate PMI climbed to 56.5 in July, up from a preliminary reading of 56.3 but down from June's 57.3. "US manufacturers are enjoying a summer of scorching growth," said Markit's Chris Williamson. "Output grew in July at a rate only just below the four-year peak seen in June as inflows of new orders surged higher again."

Univ. Of Michigan Confidence (Fri): Economists estimate this index of sentiment climbed to 81.5 from a preliminary reading of 81.3. "This would be in line with the modest declines in gasoline prices and the upward move in equity markets since the preliminary survey," said Barclays economists.

Construction Spending (Fri): Economists estimate spending increased by 0.5% in June. "Within this, we look for a 0.3% m/m rise in private residential construction to be boosted by a 0.9% rise in the public component," forecasted Barclays economists. "This would reinforce our expectations that both residential and nonresidential construction spending will contribute to real GDP growth in the second quarter."

Vehicle Sales (Fri): Analysts estimate the pace of sales slipped to 16.7 million units in July from 16.9 million in June. "Mid-month industry surveys indicate that overall sales only pulled back slightly in July after rising to an eight-year high of 16.9 million in June, and our AlphaWise team is seeing similar trends," Morgan Stanley's Wieseman said. "Retail sales appear to have moved higher, but fleet demand pulled back after strong upside last month."

Market Commentary

Goldman downgraded stocks on Friday.

"We downgrade to neutral over three months as a sell-off in bonds could lead to a temporary sell-off in equities," wrote Goldman Sachs' portfolio strategy team led by Anders Nielsen. "This makes the near-term risk/reward less attractive despite our strong conviction that equities are the best positioned asset class over 12 months, where we remain overweight."

"Growth has improved substantially," they wrote. "Most of the acceleration we had expected is now behind us, but we expect growth to be sustained at current or slightly higher levels, with the U.S. growing at around 3% through 2017. We think the likelihood of a rise in government bond yields has increased and see this as a key aspect of the near-term macro outlook."